Why Alibaba Could Surpass Amazon in Value
I wonder if noted short seller Jim Chanos has finally come to his senses and changed his bearish outlook on Alibaba Group Holding Ltd (NYSE: BABA) stock. If not, he may want to seriously rethink his strategy after BABA stock surged to a record $160.39 on Thursday, up 80% this year and easily destroying the S&P 500 and the FANG group.
By comparison, Amazon.com, Inc. (NASDAQ: AMZN) is up 41% this year, about 50% of the gain by BABA stock. Of course, Amazon’s market cap of $506.0 billion is still ahead of the $400.0 billion for Alibaba, but the spread has been narrowing.
Many of you have known about my bullish case for Alibaba since the stock traded in the $80.00 level. The chart breakout for BABA stock materialized in April 2016, with the emergence of a bullish golden cross at $80.00, followed by a breakout at $110.00.
My view towards Alibaba stock was that the company was underappreciated by investors on this side of the Pacific and it was only a matter of time before the stock broke higher.
Chart courtesy of StockCharts.com
What intrigues me about Alibaba is not only the company’s leadership in the business-to-consumers market in China and Asia, but also its desire to spread its wings in Amazon’s backyard.
If you know anything about Alibaba CEO Jack Ma, you would know he has an amazing vision of the Internet space and the strong ambition to dominate it.
Go and watch Jack Ma’s recent speech to young entrepreneurs and business people at the University of Nairobi in Kenya and you’ll get a better sense of how Ma thinks.
My Bull Case for BABA Stock
Amazon just upped the ante in its deepening battle with Alibaba after announcing it will enter into the Southeast Asia market by offering its Amazon “Prime Now” service in Singapore.
This is important as this is Alibaba’s domain, and I’m sure it will be vigorously defended. Of course, Ma wants to expand Alibaba’s minimal influence in the U.S., which ultimately should provide for a large-scale battle to brew.
For Alibaba, the company must be able to defend its Asian markets in order to have a chance to maintain its competitive edge there.
If Alibaba fails and Amazon gets a deeper foothold into Asia (I doubt Amazon will have any success in China), Ma could be forced to shift gears and mount a stronger defense or go on the attack.
For Alibaba, its advantage is that it is highly regarded in Asia and understands the complexities of operating in that region of the world.
Wall Street appears to be supporting the bull case for BABA stock, with the FY18 consensus EPS increasing to $4.56 from the $4.27 estimate from 90 days ago. The consensus for FY19 was also raised to $6.10 from $5.45. (Source: “Alibaba Group Holding Limited (BABA),” Yahoo! Finance, last accessed July 28, 2017.)
Based on the BABA stock chart, a move to above $200.00 would not be a surprise especially if the company’s cloud services business continues to accelerate higher.
In fact, I wouldn’t be surprised to eventually see the value of Alibaba surpass Amazon.